Magazine

The Hidden Costs of Investing Like a Man

By Sallie Krawcheck

December 21, 2016

Maybe this will surprise you, maybe it won’t, but some folks have a “reaction” to the concept of “investing like a woman.” (“Reaction” is a euphemism for thinking “like a woman” must mean dumbed down.) This is despite the fact that women investors, on average, perform better than men; this has been true for both professionals and individuals.

That said, I get it. There is a long history of companies employing “pink-it-and-shrink-it” marketing — not making the product truly different for women, but just…well…pinker.

That’s not what we do at Ellevest. We take into account real differences between the genders in our investing.

It Comes Down to the Numbers

Here’s “Elle.” She wants to be a bad-*ss grandma in her older age. She spends some time thinking about where she’d like to live when she retires and how she’d like to live. Her goal is to be able to spend $114K annually in retirement.

With a Traditional Advisor

Elle’s first stop: a traditional financial advisor. A guy who (probably) looks like this:

and who will likely have her “invest like a man.”

He invests in the industry’s traditional “active management” fashion. Elle deposits $12,750 (15% of her $85K salary) annually; he invests that in mutual funds, reducing the portfolio risk over time and charging her the pretty typical 1% of assets.

We take into account real differences between the genders in our investing

Fast forward 35 years to retirement time, and we estimate that she retires with a total of about $640K; her chances of spending that $114K annually, without running out by her death, are about 6.5%. Ugh. (And did this advisor achieve the goal of active management of outperforming the market? Highly unlikely; in fact, less than 0.1% outperformed over a five-year period.)*

Ok, that’s not good.

With a Digital Advisor

Elle decides she wants to save on fees and heads to a generic digital advisor, which charges 0.25% of her assets annually. This “robo-advisor” doesn’t guide her on how much to shoot for to have a prosperous retirement, so she pulls up an Excel spreadsheet, turns on her handy HP12C calculator, does the math and decides to invest 15% of her then-income. The robo advisor invests the money in a passive, inexpensive, diversified investment portfolio and keeps her risk static over time.

At retirement, we estimate Elle has approximately $983K in total. That means she has a 68.8% probability of spending approximately $114K a year without running out of money.*

Better. But is that as good as it gets?

With Ellevest

Then Elle meets Ellevest. Cue happy music. She “invests like a woman,” with Ellevest calculating for her how much money she will make over her life (different from a man), when her salary will peak (different from a man), and how much she should save every year. She also doesn’t have to tell us that she wants to aim for $114k; we estimate the dollar amount we think she’ll need for each year of retirement to live at 90% of her post-tax, pre-retirement income, and she can adjust it as she sees fit.

A key point: We also recognize that “Elle” will live longer than “Elliot,” so we model this out and apply some tough love to give her a better chance of living her later years like that bad-*ss grandma. We invest in an inexpensive, diversified investment portfolio; like the traditional advisor, we also actively reduce her investment risk profile as she ages.

Result?

We estimate Elle retires with approximately $1.2 million (86% more than with a “traditional advisor” and 21% more than with “generic digital advisor”). Elle can spend $114K a year, with a 73% probability of the money lasting through her lifespan.*

So, better. Quite a bit better.

The downside of Ellevest? In strong markets, other investment firms will likely outperform us. That’s because our investment portfolios are constructed to help you reach your goals, not to help you take on more risk than necessary to do so, so that we can “win” in those markets. (The flip side is that we should do better than others in tougher markets.) The other downside is that because we use conservative (and, we believe, realistic) market models in our projections and account for taxes and account for the cost of fees — which some advisors don't do in their forecasts — sometimes our projections don’t look as...hmmmmmm...exciting as some others’.

So, is “invest like a woman” a marketing gimmick? Is it “dumbed down?” Is it “pink?”

We assume fixed annual savings of $12,750 invested in a 97% equity portfolio of mutual funds gradually becoming more conservative over the 35 year horizon, settling at 41% equity, with average mutual fund fees plus a 1% advisory fee. The results were determined using a Monte Carlo simulation — a forward looking, computer-based calculation in which we run portfolios through hundreds of different economic scenarios to determine a range of possible outcomes.

We assume fixed annual savings of $12,750 invested in a 91% equity portfolio of low cost indexed ETFs, rebalanced to this allocation over the 35 year horizon plus a 0.25% advisory fee. The results were determined using a Monte Carlo simulation — a forward looking, computer-based calculation in which we run portfolios through hundreds of different economic scenarios to determine a range of possible.

We assume annual savings of 15% of her salary, which starts at $85,000 and follows a women specific salary curve provided by provided by Morningstar Investment Management LLC, a registered investment adviser and subsidiary of Morningstar, Inc. The savings are invested in a 97% equity portfolio of low cost indexed ETFs, gradually becoming more conservative over the 35 year horizon, settling at 41% equity, plus a 0.50% advisory fee. The results were determined using a Monte Carlo simulation — a forward looking, computer-based calculation in which we run portfolios through hundreds of different economic scenarios to determine a range of possible outcomes.

The projections of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Information was obtained from third party sources, which we believe to be reliable but not guaranteed for accuracy or completeness.

The information provided should not be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice.

The information provided does not take into account the specific objectives, financial situation or particular needs of any specific person.

Diversification does not ensure a profit or protect against a loss in a declining market. There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Investing entails risk including the possible loss of principal and there is no assurance that the investment will provide positive performance over any period of time.

Money is power.Invest like a woman.

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